Chapter # 8 Situations Solutions:

12- Amazon’s location strategy earlier is to establish warehouses and distribution

centers in lower cost states and then to distribute these products through shipping
to more populous and high cost states. Now it has started using a different strategy.
Amazon is now establishing as many distribution centers with huge variety of
products and local warehouses in the middle of the cities to make the product
available to the customer at the earliest possible.
Answer:
Amazon has a number of people working on moving the products to the customer with high
speed conveyance system.
What is Amazon's location strategy? Based on your analysis, how can this strategy impacts on
Amazon fiscally? Exam2020
Answer:
 Amazon's location strategy has three prime motives :
 1) To maintain huge stocks of inventory in places where there is more demand.
 2) To lower the shipping cost and time to deliver the products.
 3) Lessen the dependency on outbound transportation.
 Amazon is able to serve the needs of the customers in relatively short period of time
through its distribution centers. It even started Sortation centers to increase the speed to
market the products in a short span of time by using zip code system which sorts out
products.
 Amazon has been able to reduce its cost in terms of shipping and transportation, gaining a
competitive advantage over other competitors. The location strategy adapted by amazon
in setting up distribution centers and warehouses enabled the company to market more
products at a faster rate to its customers.
29- "Proximity" or closeness implies that a firm should locate "close" to something. What
are the three kinds of proximity described in the text? What are the basic conditions
under which each is appropriate? What kinds of firms are likely to use each of these?
Answer:

1-Proximity to Markets:
For many firms, locating near customers is extremely important. Particularly, service
organizations, like drugstores, restaurants, post offices, or barbers, find that
demographics and proximity to market are the primary location factors. Manufacturing
firms find it useful to be close to customers when transporting finished goods is
expensive or difficult (perhaps because they are bulky, heavy, or fragile). Like Coca-
Cola, whose product’s primary ingredient is water, it makes sense to have bottling plants
in many cities rather than shipping heavy (and sometimes fragile glass) containers cross
country.

2- Proximity to Suppliers:
Firms locate near their raw materials and suppliers because of:
(1) Perishability, 
(2) Transportation costs, or 
(3) Bulk. Bakeries, dairy plants, and frozen seafood processors deal with perish-
able raw materials, so they often locate close to suppliers. Companies dependent on
inputs of heavy or bulky raw materials (such as steel producers using coal and iron
ore) face expensive inbound transportation costs, so transportation costs become a
major factor.

3- Proximity to Competitors (Clustering):

Both manufacturing and service organizations also like to locate, somewhat
surprisingly, near competitors. This tendency, called clustering, often occurs when a
major resource is found in that region. Such resources include natural resources,
information resources, venture capital resources, and talent resources.

30. What is it called when competing companies locate next to each other? Why do
they do this?
Answer:
When competing firms are located close together it is called clustering. Clustering can
be explained by game theory and specifically by “Hoteling’s Model of Spatial
Competition.”
One reason why you come across similar businesses appearing in groups instead of being
spread evenly in the community is explained with a theory known as Hotelling’s Model of
Spatial Competition. Harold Hoteling analyzed a model of spatial competition, the
location of different businesses in a similar market respect to one another.
According to Hotelling, when competing on location, each business wants the central
point as it is the most strategic spot that allows it to be as close to as many customers as
possible. Since every business has the same mindset, they will be competing with one
another which eventually causes similar businesses to end up in a cluster focused on one
specific point. This phenomenon is apparent for gas stations, fast food chains, gadget
retailers, et cetera.

31. How do service facility location decisions differ from industrial location
decisions in terms of the techniques used to analyze them?

Answer:
The focus in industrial-sector location analysis is on minimizing cost, Unlike
Service Sector is on maximizing revenue.
Because manufacturing firms find that costs tend to vary
substantially among locations, while service firms find that location often has
more impact on revenue than cost.
Therefore, the location focus for service firms should be on determining the
volume of customers and revenue